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It’s the great Australian dream to own property, however, don’t let the excitement be diluted through ineffective tax planning. There are several key factors to consider before purchasing a property.
What are your future plans for the property?
Whether the property is to be used solely as an investment property, partly as an investment property and partly as a holiday home or whether it will become your future main residence can all impact how the property should be held, how to finance the property and what future records need to be kept for tax reporting purposes.
Investment properties and/or holiday homes can be held in one’s personal name or a structure, however a property that is to be used as a future main residence should be retained in one’s personal name to enable access to a future partial exemption from capital gains tax on sale.
Expenses associated with a property used privately either in full or in part are ineligible for a tax deduction (either in full or in part). Including borrowing expenses and interest on mortgages.
Whose name should the property be held in?
If your job puts you at a higher risk of being sued or the nature of the property results in a higher risk of being sued, holding the property in a trust as opposed to in your personal name can alleviate this risk.
Estate planning considerations can also impact whether a property should be held in one’s personal names or a trust.
If the property is to be negatively geared and in the future you will be living in Australia earning a high salary, holding the property in your personal name can provide benefits. In contrast, if the property is to be positively geared, the flexibility of a trust may prove more beneficial when considering the applicable Australian tax rate that can apply.
If not an Australian citizen or permanent resident visa holder, are there any other taxes to be aware of?
Some states apply higher stamp duty charges and land tax charges to property owners from certain nationalities. This may result in purchasing in a different State or Territory in Australia or choosing to hold the property in the name of the Australian spouse (where relevant).
How should I fund the purchase of the property?
When considering how much to borrow to purchase a property versus how much equity to invest considerations of the opportunity cost of the use of the cash should be thought out. Interest rates and the deductibility of the interest can also impact this decision.
In Summary
Ilana Kramarov and the Select Investors team work closely with, and support, expatriates with their financial wellbeing, through integrated tax and wealth planning during their time in Singapore and beyond. If you would like to learn more about the Australian property market, and further discuss Australian property tax planning, please contact Ilana via email ilana@selectinvestorsaustralia.sg.
This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances. Select Investors (Australia) Pty Ltd expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.
